VW to revisit India expansion amid China geopolitical concerns

Volkswagen Group wants to remain a strong player in Europe and China, but in the face of growing geopolitical tensions and an increasingly complex regulatory environment, the automaker is looking beyond the U.S. for markets with growth potential, Chief Financial Officer Arno Antlitz said.

“We are turning our attention to India to be more robustly positioned in this new world,” Antlitz said in an interview with Porsche Consulting Magazin.

“India has enormous growth potential in my view,” the CFO said.

The effort will mark yet another attempt by the company to break into the Indian market in a significant way.

The automaker’s earlier efforts to boost its presence in India have often been bruising experiences. An alliance with Suzuki ended in a fierce legal dispute before a single car was built and talks over teaming up with Jaguar-maker Tata Motors did not go anywhere.

But as U.S.-China tensions mount and the Asian giant’s seeming support of Russia after its invasion of Ukraine raises hackles, India’s large potential market is once again drawing the company’s attention.

India’s population surpassed that of China’s at the end of last year, and with half of that population under the age of 30, it has potential to become the world’s fastest-growing major economy in coming years.

Public adoption of electric passenger transport has been slow in India, with high upfront production costs deterring manufacturers and a dearth of charging infrastructure deterring consumers. But demand for low-cost battery-powered SUVs is growing, and homegrown automakers are now finding themselves competing with Chinese and South Korean manufacturers for market share.

VW said in August it was moving forward with a component supply deal for five new electric SUVs from India’s Mahindra & Mahindra, adding that it wanted to explore ways of working together to electrify the Indian market more quickly.

Antlitz said it remained unclear how the global economy would develop under the continued pressure of supply chain bottlenecks, which limits the number of cars that can be manufactured and sold.

Given the possibilities of a worsening economy and shrinking demand, VW is keen to avoid price discounts in coming months.

“We expect that the worldwide semiconductor supply will improve in 2023,” he said.

“That means a reduced demand would meet improved supply. And at that point we should not allow ourselves to fall back into the habit of rebates. We have to maintain price discipline.”

Hedging remains a key tool for VW’s ability to cope with rising raw material costs, Antlitz said, but that will be secondary to a vertical-integration strategy.

“The bigger lever is entering the raw material chain yourself and keeping value creation more firmly in your own grasp,” he said, adding that investment in vertical integration should occur “very, very selectively.”